The Vatican would like the Knesset plenum to ratify the agreements. Israeli negotiators state that this is not possible.

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Signs of impatience have come from Vatican officials recently regarding the seemingly endless negotiations over a bilateral financial agreement (article 10, No. 2 of the Fundamental Agreement) that should have been concluded shortly after the establishment of diplomatic relations between Israel and the Holy See 14 years ago.
One of the more moderate statements from a recent interview with Msgr. Pietro Sambi - the Vatican's nuncio to Washington and a highly-considered former nuncio to Israel - was that "the current impasse in the negotiations seems strange not only to the Holy See, the Christian world and many countries friendly to Israel, but also to many Jews, honorable citizens of Israel or denizens of other countries."
And several days ago, following the latest no-outcome meeting of the Bilateral Permanent Working Commission between the Holy See and the State of Israel, Fr. Federico Lombardi, director of the Holy See's Press Room, dismissed the prospect of a visit to Israel by Pope Benedict XVI as unfeasible for 2008 not only because his schedule already included major trips to the US and to Australia, but also because of the state of "relations between the Catholic Church and the local authority [in Israel]" and "the need for more peace in the general area."
Nonetheless, other Vatican officials and Israeli authorities in Rome considered the December 13 meeting a step forward.
Official sources on the highest levels of the Curia told The Jerusalem Post: "Although we have not yet achieved concrete results, everyone must recognize the efforts being made by Israel to solve the issues. Admittedly there is frustration, but we need now to rethink the problems, define where we are and decide how to proceed. Both sides are unquestionably determined to find a solution."
What are the underlying issues on each side? Beyond the specific cases of requested tax exemptions for religious institutions and non-profit activities connected therewith (mostly already conceded by Israel), the Vatican is concerned that whatever agreements are reached could be overturned by a future edict.
As an example, they point to the December 2002 law in which the Israeli government restricted the application of tax exemption statuses. Previously, dating back to the British mandate in 1938, religious institutions were exempt from paying all taxes, including those for services such as garbage disposal, utilities, etc. Now these services must be paid for, although in other respects the Catholic community still enjoys greater tax exemptions than all others.
Red tape regarding the acquisition of Israeli visas for priests and nuns is another source of discontent for the Catholic Church. The situation has worsened, because now individual visas are necessary, whereas in the past group visas were issued.
Israeli authorities recall that the Latin Patriarchate includes priests from Arab countries considered hostile, such as Syria, Lebanon, etc. Their visas do not depend on the will of the Foreign Ministry, but on the security services; the government's authority here is very limited. However, a proposed solution is that the Vatican issue individual bona fide guarantees.
These are but a few examples of the thorny issues on the table, many of which are related to the status quo laws affecting the Catholic Church before the creation of the state. It has become obvious that the solutions are not all to be found exclusively in Israel's camp, as both parts recognize that there are inherent difficulties in the expectations of each side.
Yet there are underlying assumptions that urgently require clarification.
The Vatican is seeking guarantees that its situation will not worsen again with time and that no new taxes will be imposed. Israeli authorities reply that with all goodwill, no absolute guarantee can be given because Israel is an evolving democracy. Conceptually all religious institutions must be treated equally.
At the base are the conflicting views of the Catholic Church's status in Israel. One view is that Catholicism is just one of the recognized religions and therefore cannot be awarded greater privileges than others. The opposing view is that the Catholic Church is represented by the Holy See, which is a state, and since the 1993 Fundamental Agreement is an agreement between states, it holds international validity that goes beyond Israeli laws applying to its various religious communities.
The juridical history of the Fundamental Agreement clearly favors the latter interpretation.
Rabbi David Rosen of the American Jewish Committee, who now serves as president of the International Jewish Committee for Interreligious Consultations, participated in the original negotiations of the Bilateral Vatican-Israel Commission that ushered in the Fundamental Agreement and diplomatic recognition between the two states in December 1993.
"The basis for the Fundamental Agreement was the understanding that it would be enshrined in Israeli law as a binding international agreement," Rosen told the Post.
He also recalled that "when the subsequent Juridical Agreement was concluded in keeping with the provisions of the Fundamental Agreement, the director-general of the Ministry of Foreign Affairs sent a letter to the Holy See confirming that it would be brought for ratification under Israeli law by the government."
However, said Rosen, "not only was this not done for either Agreement, but three years ago, the Israeli attorney-general stated in court that the Fundamental Agreement has no binding authority under Israeli law."
To move ahead now, the Vatican would like the Knesset plenum to ratify the agreements. The Israeli negotiators state that this is not possible and hold that a small commission of ministers appointed by the prime minister himself would be much more likely than the Knesset to produce positive results in a short time.
However, enough people on both sides are convinced that only an intervention on the highest Israeli political level - by the prime minister or the president himself - could solve this issue.

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